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Philippines drops China's Belt and Road as tensions flare

Tensions in the South China Sea have put economic relations under strain

Tensions in the South China Sea have put economic relations under strain

The Philippines in late October became the latest country to back out of China's Belt and Road Initiative (BRI), with Transport Minister Jaime Bautista telling reporters the sudden withdrawal came after Beijing did not respond to funding requests on railway projects.

China had pledged almost $5 billion (€4.7 billion) to build three rail lines — two in Luzon and one in Mindanao — under the BRI, a keystone of Beijing's foreign policy offering Chinese-backed loans for major infrastructure projects mostly in developing parts of the world.

However, China and the Philippines have been locked in a years-long dispute over maritime territory in the South China Sea, which China has claimed in its entirety.

In the most recent incident, a Chinese coast guard ship rammed a Philippine fishing vessel in contested waters near Second Thomas Shoal.

However, Philippine officials did not mention territorial tension as the reason behind the pull out.

Don McLain Gill, a geopolitical analyst and lecturer in international studies at De La Salle University in Manila, told DW that there are also funding delays for six other projects, including a closed-circuit television project, the New Centennial Water Source, the Kaliwa Dam Project, and the Philippine National Railway's South Long Haul Project.

"The decision to withdraw from these projects can be assumed to be motivated by issues centered on their sustainability and the mounting concerns brought by Beijing's unwillingness to act like a responsible neighbor," he said.

South China Sea tensions

Tensions have recently been mounting between the Philippines and China in the South China Sea, particularly near the Second Thomas Shoal, or Ayungin Shoal, which are all part of the contested Spratly Islands.

Philippine troops live on the deliberately submerged BRP Sierra Madre, a ship used in World War II by the United States Navy. The ship has been under repair for years, so it remains habitable for the soldiers stationed there.

China claims nearly all of the South China Sea, and for years has constructed military installations on shoals and reefs.

In 2016, an international tribunal sided with the Philippines and ruled that China's territorial claims in the South China Sea had no basis in international law.

Tensions have grown since the election of President Ferdinand Marcos Jr, who has taken a less China-friendly stance than his predecessor, Rodrigo Duterte, and has nudged closer to the US on strategic policy.

In February, the Philippines Coast Guard accused its China counterpart of shining a military-grade laser at its ship and near the disputed Shoal, causing temporary blindness to its crew.

China denied the accusation was deliberate. Video footage in August showed China’s Coast Guard firing a water cannon at the Philippines Coast Guard and blocking them from delivery supplies to its military troops stationed on the Sierra Madre ship.

China has always maintained it is operating in its own territorial waters.

"The pretext for China's harassment has been that the resupply boats have been carrying 'construction materials,' with China has deemed 'illegal,'" said Col. Raymond Powell, SeaLight Director at Stanford University’s Gordian Knot Center for National Security Innovation.

"In other words, China has been carrying out a blockade of the shoal, in which it only allows through food and replacement troops, but blocks and water cannons those carrying construction materials," he added.

"The last resupply occurred on October 21, so there will be another in the coming weeks. These have been the regular flashpoints, and China will need to decide whether it wants to continue this level of harassment. The question is whether China is willing to take a step back," Powell said.

Japan and India alternatives

With China seemingly stalling on its economic projects in the Southeast Asian country, Philippine senator Sherwin Gatchalian told local media the tensions in the disputed shoal could be the reason China's projects are delaying.

But Gill said the stalling of China-funded projects could help Manila in the long run to partner with other countries.

"Such developments will in fact prove to be beneficial for the Philippines' long term development agenda, given Manila's willingness to broaden and diversify its economic and development partners. Manila is now looking at Japan and India as viable sources of funding for railway projects," Gill added.

Despite Manila pulling out of the BRI, the Philippines and China have had close economic relations for years. Beijing has been Manila's top trade partner in recent years and its second largest export economy, only to be beaten by the United States, according to the World Bank.

"As things stand, Chinese foreign direct investments are not that substantial. The stoppage of BRI investments will not substantially affect investments in the Philippines," Jan Carlo Punongbayan, a Filipino economist and assistant professor at the University of the Philippines School of Economics, told DW.

"In terms of trade, China is among the biggest partners of the Philippines. But in terms of investments, the Philippines is not a big destination of Chinese investments," he added.

But Punongbayan said tensions could endanger the two countries from collaborating on future development projects.

"China will continue to be a big trading partner of the private sector. But government-to-government partnerships may be more limited moving forward. It may be more difficult to get official development assistance from Beijing now, given China's intrusions in the West Philippine Sea."

Gill said there are signs that Manila wants to rely less on China. Philippine officials have said they are confident of securing funding from the World Bank or the Asian Development Bank.

"Manila's desire to lessen its dependence on China's economic partnership can also be understood as an element of its broader security interests in the West Philippine Sea at a time when China continues to expand its assertive interests against Philippine sovereignty and sovereign rights," Gill said.

"Given the asymmetric power relations between Manila and Beijing, the Philippines will have to embark on a multi-dimensional approach to lessen the risks brought by China's assertive rise. One of these methods will be to lessen its economic dependence," he added.

Edited by: John Silk